Portfolio Questions - On the road, but not sure where to exit...

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Topic Author
Shenfan11
Posts: 6
Joined: Sun Oct 14, 2012 7:56 pm

Portfolio Questions - On the road, but not sure where to exit...

Post by Shenfan11 »

Greetings Bogleheads:

I’m at a point where I feel like I have a plan but wanted to run it by some more financially astute eyes for comment/feedback/advice. Thank you in advance.

Emergency funds: 8 months in a CD@4% - $25,000
Checking/Savings - $25,000
Debt: Car loan @3.5%, but it gets paid off in June, Mortgage balance $280,000 @2.25% paid off in 2034
Tax Filing Status: Married Filing Jointly
Tax Rate: 24% Federal, Unsure but think it is somewhere between 14% and 19%
State: MD
Age: 59(him) 39(her)
Desired Asset Allocation: 80% stocks/20% bonds
Desired International: 0%
Portfolio size: $500,000

Taxable
Fidelity: FSKAX - $2000
Vanguard VGSLX- $4000

His TSP
L-income - $65,000
C Fund - $25,000

His Roth
VTSAX - $100,000

His IRA
VTSAX - $105,000

His 529
Equity Index 500 Portfolio - $35,000

Her 401k
Dryden S&P 500 Index - $35,000

Her Roth
VFIAX - $95,000

Her 529
Target Date Fund 2030 - $16,000

Plans
I have a ten year old that will likely be going to college in 8 years. I am currently working for the federal government and will vest for a small pension in about two and a half years. My wife has a cash balance pension (probably $3500 monthly) coming whenever she retires. At present I think I will have to work another 8-10 years. At that point I may retire and do some Roth conversions before claiming social security. I think the social security and pension will cover most of our living expenses once the house is paid off. My wife has no plans to retire unless we hit the lottery. My asset allocation plan is basically to use the G fund for bonds and the C fund and VTSAX for stock, reducing equity exposure at the rate of about 1 percent every six months until I get to 60/40.
We have both been contributing to Roth accounts for almost 15 years, in many of those years we have maxed both of our Roth accounts as this is our highest priority. Next we concentrate on our 401ks, but have never maxed either. We have two cars, one ten years old and the other five years old. Once the five year old car is paid in June, I think we were going to save for the next car in a regular checking account or CD account.
We are putting about $250 a month more toward the mortgage than required just because ideally I would like to have it done before retiring, but the balance will be low enough to carry for about two years into retirement, prior to social security at 70. Current balance is around $280,000.

Questions
1. This summer, I have the option of taking a $160,000 lump sum or pension payments of $850 per month for the lifetime of both me and my wife. Any suggestions as to which option is best?

2. Should I roll my traditional IRA into my TSP account? I did roll about $50k there a couple of years ago when I first started the federal government job just to jump start my TSP account.

3. Should I open up a HELOC? I was preapproved for about $200,000 @ 6%. I declined but have been thinking perhaps this could serve as an emergency fund and use our current fund for something else.

4. Is there something that I should be doing to try to take advantage of the age gap? Advice on how to improve our numbers? Although she is the higher earner, she is somewhat hesitant to put money in the markets and now has as much in her checking account as our emergency fund.

I appreciate any advice/insight/guidance that you can provide.
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Beensabu
Posts: 5657
Joined: Sun Aug 14, 2016 3:22 pm

Re: Portfolio Questions - On the road, but not sure where to exit...

Post by Beensabu »

Shenfan11 wrote: Mon Mar 27, 2023 1:39 pm 1. This summer, I have the option of taking a $160,000 lump sum or pension payments of $850 per month for the lifetime of both me and my wife. Any suggestions as to which option is best?
Does the pension have a cost of living adjustment? Because that would make it easy. Your wife is 39, so those payments could last awhile. It's like having $340k now and starting withdrawals at 3% of beginning balance. On the other hand, if you were to take the lump sum, how would you invest it and what would be a reasonably conservative rate of return to expect on that investment?
2. Should I roll my traditional IRA into my TSP account? I did roll about $50k there a couple of years ago when I first started the federal government job just to jump start my TSP account.
Why? How would those funds be invested if you did? If you take the lump sum pension payout, you'd be rolling it over into a traditional IRA anyway, right?

Oh:
Shenfan11 wrote: Mon Mar 27, 2023 1:39 pm My asset allocation plan is basically to use the G fund for bonds and the C fund and VTSAX for stock, reducing equity exposure at the rate of about 1 percent every six months until I get to 60/40.
Yeah, if you want to be able to increase your bond allocation from 20% to 40% over the course of 10 years and have the entire bond allocation in the G fund, then maybe you might have to roll over your tIRA into your TSP account at some point. Maybe not, though. It kind of depends how much you are contributing to your TSP and whether you could do it solely with contributions. Also, why isn't anything in the G fund already?
3. Should I open up a HELOC? I was preapproved for about $200,000 @ 6%. I declined but have been thinking perhaps this could serve as an emergency fund and use our current fund for something else.
No. Credit is not a good emergency fund. It really isn't. Also, your retirement plans seem to hinge on a paid off house.
4. Is there something that I should be doing to try to take advantage of the age gap? Advice on how to improve our numbers? Although she is the higher earner, she is somewhat hesitant to put money in the markets and now has as much in her checking account as our emergency fund.
She doesn't really need to put much in the markets with that pension coming her way, does she?

You kind of have to let people know your expenses (current and anticipated future) and expected SS and pension income (you and her) if you want real answers to this. Otherwise, it's just this for both of you now and presumably also for her whenever she retires:
Shenfan11 wrote: Mon Mar 27, 2023 1:39 pm I think the social security and pension will cover most of our living expenses once the house is paid off.
If that's the case, then I can see why your wife would rather have more cash available for unexpected/irregular expenses.
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
lnp
Posts: 166
Joined: Tue Aug 17, 2021 2:33 am

Re: Portfolio Questions - On the road, but not sure where to exit...

Post by lnp »

1: Deciding between a lump sum or monthly pension payments can depend on several factors, including your health, life expectancy, and other sources of retirement income. It may be helpful to speak with a financial advisor who can help you weigh the pros and cons of each option and determine which one is best for your specific situation.

2: Rolling your traditional IRA into your TSP account could potentially simplify your retirement savings and provide you with more investment options. However, it's important to carefully consider the fees and investment options in both accounts before making a decision. It may be helpful to speak with a financial advisor to help you evaluate this option.

3: Opening a HELOC as an emergency fund could be an option, but it's important to carefully consider the interest rate and repayment terms before doing so. Additionally, if your current emergency fund is earning 4% in a CD, it may not make sense to move that money into a HELOC with a higher interest rate.

4: With an age gap of 20 years, you may want to consider planning for your wife's retirement separately from yours. This could involve maximizing contributions to her retirement accounts and potentially opening an individual retirement account (IRA) for her. It may also be helpful to speak with a financial advisor who can help you develop a retirement plan that takes your age difference into account and maximizes your retirement savings.

Overall, it seems like you have a solid plan in place and are on track for a comfortable retirement. However, speaking with a financial advisor can help you optimize your retirement plan and ensure that you're taking advantage of all available options.
Topic Author
Shenfan11
Posts: 6
Joined: Sun Oct 14, 2012 7:56 pm

Re: Portfolio Questions - On the road, but not sure where to exit...

Post by Shenfan11 »

Yeah, if you want to be able to increase your bond allocation from 20% to 40% over the course of 10 years and have the entire bond allocation in the G fund, then maybe you might have to roll over your tIRA into your TSP account at some point. Maybe not, though. It kind of depends how much you are contributing to your TSP and whether you could do it solely with contributions. Also, why isn't anything in the G fund already?

The L-income fund is a composite of all of the other funds that the TSP offers. It is 70% G fund.
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HipCoyote
Posts: 233
Joined: Mon Jan 27, 2020 5:30 pm

Re: Portfolio Questions - On the road, but not sure where to exit...

Post by HipCoyote »

A few questions popped out at me.

You have a portfolio worth $500 k, you have some obligations, your wife is younger than you and you have a child...all which make me think that you need a good amount of term life insurance. I know it was not asked, but I felt compelled to mention it. If not done yet, get it now before it gets too pricey.

On the pension you may take, does that mean you make a decision at that time as to how you are going to receive the pension/payout or does it start then? Is that $850 cost of living adjusted or do you just get $850 a month? Using a few more factors, wife's life expectancy, guesstimate of return on the lump sum, and the COLA for the pension (if any) and you could find your answer there. If it was a pay now, with some sort of COLA, I'd be tempted to take it now and put the money to use buying term insurance (if needed). But the details matter in this decision.

As others mentioned, the age difference is something to consider. Your wife's retirement should be considered separately. Tough thing to consider but when your wife is 70, you will be 90. So, any plan you enact, you may want to consider how your financial situation will look when she is 70. I can also say we had an acquaintance who had a younger wife, a son, a nice house, a pension, and all was well...until it wasn't. She was not working and there was no real-world acceptance of the potential circumstances of him passing away when she was in her mid 60s....which is exactly what happened. He stupidly opted for a government pension that only paid him benefits, no survivor benefits, no life insurance, and the list goes on. Suffice to say, there were some life style changes for the survivors. An easily avoidable situation.

Best of luck in your journey.
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retiredjg
Posts: 54082
Joined: Thu Jan 10, 2008 11:56 am

Re: Portfolio Questions - On the road, but not sure where to exit...

Post by retiredjg »

A couple of comments, not necessarily related to your questions.

REIT funds are usually a poor choice for a taxable account. They pay a lot of dividends and those dividends are taxed at ordinary tax rates. While the balance is still small, you should probably sell the REIT and hold it instead in an IRA or Roth IRA.

If you are in the 24% tax bracket, you may not be able to contribute directly to Roth IRA. If you are using the backdoor Roth IRA process, yours should be pro-rated with His tIRA. I''m thinking you have not realized you are near or over the limit or your tax bracket assumption is incorrect. Either way, this is something to pay attention to.

I don't think any state has a tax rate between 14% and 19%. Even if you are looking at an effective rate, that is way too high.

Rolling traditional into TSP would be fine if you want. I don't think a HELOC is a great idea.

I think you are doing fine financially.

I don't know what to do about the age gap, but since she is the higher earner, the age gap may not be a problem.
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